Sun, Dec 14, 2003 - Page 10 News List

Dow holds above 10,000 for this year's high

A LITTLE HELP FROM THE FED Most analysts see little significance in the psychological barrier of 10,000 points, but no one feels bad about ending the year high

AFP , NEW YORK

It took a little help from the Federal Reserve, but the Dow Jones Industrials finally managed to reach the 10,000 milestone and hold there to reach a high point for this year in the past week.

Although most analysts say there is little significance of 10,000 -- a level not seen since May last year -- it marked an important psychological step for Wall Street as it caps a solid this year after three consecutive losing years.

The Dow index of 30 blue-chip companies rallied 1.82 percent for the week to 10,042.16.

Meanwhile the tech-heavy NASDAQ advanced 0.58 percent in the week to Friday to 1,949.00, and the broad-market Standard & Poor's 500 climbed 1.19 percent to 1,074.14.

Puzzling statement

Analysts said part of the credit for the gains over the past week goes to the Fed, but not because of its statement Tuesday which left investors somewhat puzzled after holding rates steady.

Instead, a key ingredient to the rally was the release of minutes from the Oct. 28 Federal Open Market Committee meeting, which seemed to ease fears about a rate boost in early next year.

The minutes of the Fed's rate setting meeting revealed that although the US economy is likely to improve, labor market weakness may linger beyond the end of 2005. This could keep inflation low and allow the Fed to keep rates low, or "accomodative."

Rhetoric

Citigroup economist Robert DiClemente said the Fed "has turned up the volume of accomodative rhetoric," calming fears on the bond market that could create pressure for higher interest rates.

"Tuesdays statement from the FOMC combined with the min-utes of their October meeting yet again have harnessed rising interest rate expectations," DiClem-ente said.

"The Fed's message this week was that policy may not change as soon as markets have speculated at times recently, but that events suggest the need for accommodation will not last indefinitely," DiClemente said.

David Rosenberg, chief North American economist at Merrill Lynch, said the Fed was trying to signal "that timing the first tightening move will not be done with a calendar in mind, but by how long it will take to absorb the vast amount of excess capacity [especially in the labor market]."

He said an analysis of Fed chairman Alan Greenspan's past actions suggest "it would not be a stretch to see the Fed wait until the unemployment rate approaches the five percent level, which ... could still take us into 2005."

As for Wall Street, analysts said momentum remains strong going into the year-end holidays that are normally bullish for stocks, even after a strong nin-month runup.

"Investors appear optimistic heading into mid-December," said Steven Young at Banc of America Capital Management.

"This optimism may be rewarded, as December has historically been one of the top-performing months for US equities ... Even if investors prove unwilling to pay more for expected earnings in the form of higher price-to-earnings ratios, stronger corporate earnings may result in higher stock prices," Young said.

Added Alfred Goldman at AG Edwards: "The message of the market remains bullish. Stocks continue to act very well on the upside, and pullbacks have been modest."

Bonds were weaker, but recovered some lost ground after the Fed minutes were released.

The yield on the 10-year US Treasury bond rose to 4.242 percent from 4.215 percent a week earlier and that on the 30-year bond to 5.088 percent from 5.047 percent.

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